Virginia Hills Oil Corp. Announces the Proposed Acquisition of a Private Oil and Gas Producer and Amendments to the Terms of Its Previously Announced Private Placement

CALGARY, ALBERTA--(Marketwired - March 4, 2015) - Virginia Hills Oil Corp. ("Virginia Hills" or the "Company") and Pinecrest Energy Inc. ("Pinecrest") (TSX VENTURE:PRY) are pleased to announce that Virginia Hills and its wholly-owned subsidiary 1834163 Alberta Ltd. ("AcquisitionCo") have entered into an agreement (the "Amalgamation Agreement") with a private oil and gas producer ("PrivateCo") pursuant to which Virginia Hills, through AcquisitionCo, will purchase all of the issued and outstanding common shares (the "PrivateCo Shares") of PrivateCo (the "PrivateCo Acquisition") for total consideration of an aggregate of 4.0 million share purchase warrants of Virginia Hills ("Virginia Hills Warrants"), 10,600 common shares of Virginia Hills ("Virginia Hills Shares") and the assumption of approximately $11.8 million in debt. Each Virginia Hills Warrant will entitle the holder to purchase one (1) Virginia Hills Share at a price of $0.50 for a period of three (3) years.

Terms of the PrivateCo Acquisition

Pursuant to the terms of the Amalgamation Agreement, each shareholder of PrivateCo will receive: (i) 0.09119 of a Virginia Hills Warrant; and (ii) 0.0002417 of a Virginia Hills Share, for each PrivateCo Share held. Certain third party services providers of PrivateCo will also receive an aggregate of 1.171 million Virginia Hills Shares as satisfaction for services rendered to PrivateCo.

The board of directors of PrivateCo has agreed to recommend the approval of the proposed PrivateCo Acquisition to PrivateCo shareholders. Certain PrivateCo shareholders, including the management and directors of PrivateCo holding approximately 42.4% of the issued and outstanding PrivateCo Shares, have agreed to, amongst other things, vote their PrivateCo Shares in favour of the PrivateCo Acquisition at the special meeting of PrivateCo shareholders to be held on or about March 30, 2015. It is anticipated that the PrivateCo Acquisition will be completed on or about March 30, 2015. An information circular for the special meeting of PrivateCo shareholders to be held to consider the PrivateCo Acquisition will be mailed to PrivateCo shareholders on or about March 9, 2015. Cormark Securities Inc. acted as exclusive financial advisor to PrivateCo respecting the PrivateCo Acquisition.

Conditions to Completion of the PrivateCo Acquisition

Completion of the PrivateCo Acquisition is subject a number of conditions including but not limited to the approval of the TSX Venture Exchange, the completion of the Arrangement (as defined below) and receipt of PrivateCo shareholder approval. There can be no assurance that the PrivateCo Acquisition will be completed as proposed or at all.

The PrivateCo Assets

The assets of PrivateCo (the "PrivateCo Assets") are comprised of approximately 110 boe/d (85% light oil) of production, 24,000 net undeveloped acres in the Greater Red Earth area and $51 million of high quality tax pools. All of PrivateCo's light oil production and undeveloped acreage resides within Pinecrest's current core Greater Red Earth operating area and is adjacent to the Pinecrest-owned and operated emulsion processing and waterflood infrastructure. Pursuant to the previously announced proposed plan of arrangement under the Business Corporation Act (Alberta) involving Pinecrest, Virginia Hills and junior dividend paying company (the "Purchaser") (the "Arrangement"), Virginia Hills will, amongst other things, acquire approximately 90% of the assets of Pinecrest, which are located in the Greater Red Earth area of Alberta. The completion of the Arrangement and the PrivateCo Acquisition by Virginia Hills will provide the potential for significant future operational synergies.

Virginia Hills management estimates that PrivateCo's undeveloped acreage contains approximately 25 risked undeveloped Slave Point light oil horizontal drilling locations with the potential to recover approximately 120 mboe per well at a capital cost of approximately $2.9 million per well. Based on off-setting analogous data, the Company believes that the PrivateCo development area has the potential to be successfully water flooded.

On a proved plus probable reserve basis, including developed and undeveloped reserves, the management of Virginia Hills estimates that the PrivateCo Assets contain approximately 3.3 mmboe (95% light oil) of reserves through primary recovery techniques (300 mboe developed and 3,000 mboe of undeveloped) with associated future development capital of $72.5 million based on the above noted type curve assumptions of $2.9 million of capital and 120 mboe of recoverable reserves per well. Including the assumption of approximately $11.8 million in debt and the issuance of 1.171 million Virginia Hills Shares at a deemed price of $0.25/share, the full cycle finding and development costs of the PrivateCo Acquisition are expected to be approximately $25.60 per boe and represent a recycle ratio of approximately 1.5 times using the Company's forecast full cycle netbacks of $40.00 per boe (forecast light oil pricing of $75.00 Cdn per bbl Edmonton Par). The Company believes that this forecasted recycle ratio has the potential to improve over the long term with the implementation of secondary recovery techniques on the PrivateCo lands and by including certain operational synergies with the off-setting Pinecrest production and assets to be acquired by Virginia Hills pursuant to the Arrangement. The forecasted recycle ratio is calculated by dividing the netback per boe, by the expected finding and development costs for the period (ie. ($40.00/$25.60 = 1.56). The recycle ratio compares the netback from existing Pinecrest reserves to the expected cost of finding new reserves and may not accurately indicate investment success unless the replacement reserves are of equivalent quality as the produced reserves.

The PrivateCo Acquisition is accretive to Virginia Hills on both proved plus probable reserves and net present value per share. The PrivateCo Acquisition will help position the Company to establish a premium light oil asset in the Red Earth area focused on sustainable development of the Slave Point formation using concurrent implementation of primary and secondary recovery techniques.

Following the completion of the PrivateCo Acquisition and the Arrangement, Virginia Hills expects to have a total of 75 gross (70 net) risked undeveloped light oil horizontal drilling locations in the Slave Point formation in the Greater Red Earth area representing approximately a seven (7) year drilling inventory. Total un-risked undeveloped light oil Slave Point horizontal drilling locations in the Greater Red Earth area would exceed 125 gross (115 net) locations representing over ten (10) years of potential drilling inventory.

Amendments to Virginia Hills Private Placement

Virginia Hills has amended the terms of its previously announced private placement (the "Private Placement") of subscription receipts (the "Subscription Receipts") as described in the news release of Pinecrest dated February 17, 2015 and the information circular and proxy circular of Pinecrest dated February 17, 2015 (the "Information Circular"), each filed on Pinecrest's SEDAR profile at www.sedar.com. The size of the Private Placement has been increased to up to $3 million of Subscription Receipts at a price of $0.25 per Subscription Receipt. Each Subscription Receipt will entitle the holder thereof to one (1) unit of Virginia Hills (a "Unit") for no additional consideration upon completion of the PrivateCo Acquisition.

Each Unit will be comprised of one (1) Virginia Hills Share issued on a flow-through basis (a "Flow-Through Share") under the Income Tax Act (Canada) (the "Tax Act") and two (2) common share purchase warrants issued on a flow-through basis under the Tax Act (each a "Flow-Through Warrant"). Of the two (2) Flow-Through Warrants, one will be exercisable at a price of $0.30 and the other at a price of $0.35. Each Flow-Through Warrant will entitle the holder to purchase one (1) Virginia Hills Share for a period of five (5) years. The Flow-Through Warrants will vest and become exercisable in tranches of 1/3 upon the twenty (20) day weighted average trading price of the Virginia Hills Shares equalling or exceeding $0.35, $0.40 and $0.45, respectively.

Pursuant to the terms of interim order obtained by Pinecrest in connection with the Arrangement, this news release shall serve as an amendment to the Information Circular and particularly the description of the Private Placement therein. The proposed resolution in respect of the Private Placement to be approved by a majority of the disinterested Pinecrest shareholders at the special meeting of Pinecrest shareholders to be held on March 19, 2015 shall be read as referencing the terms of the Private Placement as described in the Information Circular, as amended by this news release.

Arrangement Rights

Under the terms of the proposed Arrangement, each Pinecrest shareholder will receive one (1) Virginia Hills Share for each one hundred (100) common shares of Pinecrest held. Further, each Pinecrest shareholder will receive eight (8) arrangement rights of Virginia Hills ("Arrangement Rights") for each Virginia Hills Share received under the Arrangement. Each Arrangement Right will entitle the holder to purchase one (1) Virginia Hills Share for $0.25 for a period of thirty (30) days following completion of the Arrangement. To the extent that a holder exercises all Arrangement Rights granted to it under the Arrangement, it will be eligible to purchase additional Virginia Hills Shares through the exercise of Arrangement Rights which remain unexercised by other former Pinecrest Shareholders at a price of $0.25 per Virginia Hills Share.

Virginia Hills Post Closing

Assuming the completion of the PrivateCo Acquisition, the Arrangement and the exercise of all the outstanding Arrangement Rights, Virginia Hills will have a total of 32,731,046 Virginia Hills Shares and 31,273,104 warrants outstanding.

Post-Closing Outstanding Equity Instruments:			Virginia Hills Shares	Warrants
Virginia Hills Shares (issued pursuant to the Arrangement)				-
	•	Issued pursuant to the Arrangement(1)	2,172,125	-
	•	Issued pursuant to the exercise of all outstanding Arrangement Rights issued pursuant to the Arrangement(2)(3)	17,376,989
Private Placement(4)(5)			12,000,000	24,000,000
Bank Warrants(6)			-	3,273,104
PrivateCo Acquisition(7)			10,600	4,000,000
PrivateCo third party service providers(8)			1,171,332	-
Total Outstanding Equity Instruments:			32,731,046	31,273,104

Notes:

(1)	Pursuant to the terms of the Plan of Arrangement, each holder of Pinecrest common shares will receive one (1) Virginia Hills Share for each one hundred (100) Pinecrest common shares held.
(2)	Pursuant to the terms of the Plan of Arrangement, each holder of Virginia Hills Shares issued thereunder will receive eight (8) Arrangement Rights for each one (1) Virginia Hills Share held.
(3)	Assumes that all Arrangement Rights are exercised.
(4)	Upon completion of the PrivateCo Acquisition, each Subscription Receipt will entitle the holder thereof for no additional consideration to one Unit (as described above).
(5)	Assumes that the Private Placement is fully subscribed.
(6)	Common share purchase warrants of Virginia Hills will be issued to the lenders of Virginia Hills ("Bank Warrants"), representing 10% of the issued and outstanding Virginia Hills Shares on the date which is thirty (30) days from the date of completion of the Arrangement. Each Bank Warrant will entitle the lenders to purchase one (1) Virginia Hills Share at a price of $0.30 for a period ending on the earlier of five (5) years from the date of issuance or thirty (30) days following the date on which the credit facility of Virginia Hills matures.
(7)	Pursuant to the terms of the PrivateCo Acquisition, an aggregate of 4 million Virginia Hills Warrants and 10,600 Virginia Hills Shares will be issued to holders of PrivateCo Shares.
(8)	Certain third party service providers of PrivateCo will receive Virginia Hills Shares as payment for services previously rendered to PrivateCo.

Total production following completion of the PrivateCo Acquisition will be approximately 1,640 boe/d (95% light oil). Net debt is estimated at $96 million, assuming that the Private Placement is fully subscribed and Arrangement Rights are fully exercised and prior to the payment of the additional $5 million to which Virginia Hills is entitled to receive from the Purchaser under the Arrangement if during the period ending on April 26, 2016, a front month hedge is made available to the Purchaser by one or more financial institutions, financial intermediaries or credit branches at a price of $US65/Bbl WTI for a minimum of twelve (12) months.

Upon closing the above noted transactions, the entity resulting from the amalgamation of PrivateCo and AcquisitionCo anticipates having its own aggregate credit facilities of $11 million with a maturity date of March 31, 2016. These credit facilities are in addition to the previously announced $94.3 million credit facilities of Virginia Hills anticipated to be available upon closing of the previously announced Arrangement.

Advisory

The information in this news release contains certain forward-looking statements. These statements relate to future events or our future performance. All statements other than statements of historical fact may be forward-looking statements. Forward-looking statements are often, but not always, identified by the use of words such as seek, anticipate, plan, continue, estimate, expect, may, will, project, predict, potential, targeting, intend, could, might, should, believe, would and similar expressions. In particular, forward looking statements in this news release include, but is not limited to: the completion of the PrivateCo Acquisition and the proposed timing thereof; the receipt of PrivateCo shareholder approval; the receipt of all regulatory approvals for the PrivateCo Acquisition; the completion of the Arrangement; the debt to be assumed pursuant to the PrivateCo Acquisition; the operational synergies to be realized upon completion of the Arrangement and the PrivateCo Acquisition; the number of risked drilling locations associated with the PrivateCo Assets; the reserves recoverable from the drilling locations identified by the Company's management; the cost associated with drilling wells on the lands acquired through the PrivateCo Acquisition; the total reserves associated with the PrivateCo Assets; the finding and development costs associated with the PrivateCo Acquisition; the Company's future netbacks; the Company's recycle ratio and the potential to increase such ratio through the implementation of secondary recovery techniques; the number of unrisked and risked drilling locations the Company will have following the completion of the Arrangement and the PrivateCo Acquisition; the number of Subscription Receipts to be sold pursuant to the Private Placement and the aggregate proceeds to be raised by the Company under the Private Placement.

These statements involve substantial known and unknown risks and uncertainties, certain of which are beyond Virginia Hills' control, including: the impact of general economic conditions; industry conditions; changes in laws and regulations including the adoption of new environmental laws and regulations and changes in how they are interpreted and enforced; fluctuations in commodity prices and foreign exchange and interest rates; stock market volatility and market valuations; volatility in market prices for oil and natural gas; liabilities inherent in oil and natural gas operations; uncertainties associated with estimating oil and natural gas reserves; competition for, among other things, capital, acquisitions, of reserves, undeveloped lands and skilled personnel; incorrect assessments of the value of acquisitions; changes in income tax laws or changes in tax laws and incentive programs relating to the oil and gas industry; geological, technical, drilling and processing problems and other difficulties in producing petroleum reserves. The Company's actual results, performance or achievement could differ materially from those expressed in, or implied by, such forward-looking statements and, accordingly, no assurances can be given that any of the events anticipated by the forward-looking statements will transpire or occur or, if any of them do, what benefits that the Company will derive from them. Forward-looking statements are made as of the date herein except as required by law, neither Virginia Hills nor Pinecrest undertakes any obligation to publicly update or revise any forward-looking statements.

Statements relating to "reserves" or "resources" are deemed to be forward-looking statements, as they involve the implied assessment, based on certain estimates and assumptions, that the resources or reserves described can be profitably produced in the future.

Analogous Information

Certain information in this news release may constitute "analogous information" as defined in National Instrument 51-101 - Standards of Disclosure for Oil and Gas Activities ("NI 51-101"), including, but not limited to, information relating to well and operations that are in geographical proximity to or believed to be on-trend with lands held by PrivateCo and Pinecrest. Such information has been obtained from public sources, government sources, regulatory agencies or other industry participants. Management of Virginia Hills believes the information may be relevant to help define the reservoir characteristics within lands on which Virginia Hills will hold an interest following the completion of the Arrangement and the PrivateCo Acquisition and such information has been presented to help demonstrate the basis for Virginia Hills' business plans and strategies. However, management cannot confirm whether such analogous information has been prepared in accordance with NI 51-101 and the Canadian Oil and Gas Evaluation Handbook and Virginia Hills is unable to confirm that the analogous information was prepared by a qualified reserves evaluator or auditor. Virginia Hills has no way of verifying the accuracy of such information. There is no certainty that the results of the analogous information or inferred thereby will be achieved by Virginia Hills and such information should not be construed as an estimate of future production levels or the actual characteristics and quality Virginia Hills' assets. Such information is also not an estimate of the reserves or resources attributable to lands to be held by Virginia Hills and there is no certainty that such information will prove to be analogous in the future. The reader is cautioned that the data relied upon by Virginia Hills may be in error and/or may not be analogous to such lands to be held by Virginia Hills.

Finding and Development Costs

This news release includes calculations of finding and development costs for the PrivateCo Acquisition. NI 51-101 requires that written disclosure of finding and development costs to be calculated in accordance with Section 5.15 of NI 51-101 which does not include the reserves additions associated with acquisitions or the costs of acquisitions in the calculation. The calculations of finding and development costs in this news release include the reserves additions associated with acquisitions and the costs of acquisitions as Virginia Hills believes that including the effect of acquisitions provides useful information to investors.

Drilling Locations

This news release discloses drilling locations in unbooked locations. Unbooked locations do not have attributed reserves or resources. Unbooked locations have been identified by management of Virginia Hills as an estimation of the multi-year drilling activities based on evaluation of applicable geologic, seismic, engineering, production and reserves information. There is no certainty that the Company will drill all unbooked drilling locations and if drilled there is no certainty that such locations will result in additional oil and gas reserves, resources or production. The drilling locations on which Virginia Hills actually drills wells will ultimately depend upon the availability of capital, regulatory approvals, seasonal restrictions, oil and natural gas prices, costs, actual drilling results, additional reservoir information that is obtained and other factors. While certain of the unbooked drilling locations have been unrisked by drilling existing wells in relative close proximity to such unbooked drilling locations, certain of other unbooked drilling locations are farther away from existing wells where management has less information about the characteristics of the reservoir and therefore there is more uncertainty whether wells will be drilled in such locations and if drilled there is more uncertainty that such wells will result in additional oil and gas reserves, resources or production.

Type Curve Advisory

References in this news release to production type curves and other short-term production rates are useful in confirming the presence of hydrocarbons, however such rates are not determinative of the rates at which such wells will commence production and decline thereafter and are not indicative of long term performance or of ultimate recovery. While encouraging, readers are cautioned not to place reliance on such rates in calculating the aggregate production for Virginia Hills. A pressure transient analysis or well-test interpretation has not been carried out in respect of all wells. Accordingly, Virginia Hills cautions that the test results should be considered to be preliminary.

Boe Advisory

Barrels of Oil Equivalent ("boe") may be misleading, particularly if used in isolation. A boe conversion ratio of 6MCF:1bbl is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. Given that the value ratio based on the current price of crude oil as compared to natural gas is significantly different from the energy equivalency of 6:1, utilizing a conversion on a 6:1 basis may be misleading as an indication of value.

Future Oriented Financial Information

This news release, in particular the information in respect of anticipated finding and development costs, recycle ratios and netbacks, may contain Future Oriented Financial Information ("FOFI") within the meaning of applicable Canadian securities laws. The FOFI has been prepared by management of Virginia Hills to provide an outlook of Virginia Hills's anticipated activities and results post the Arrangement and the PrivateCo Acquisition. The FOFI has been prepared based on a number of assumptions, including the assumptions discussed under the heading "Advisory" and assumptions with respect to production rates, drilling results, and commodity prices. The actual results of operations of the Virginia Hills and the resulting financial results may vary from the amounts set forth herein, and such variation may be material. Virginia Hills and its management believe that the FOFI has been prepared on a reasonable basis, reflecting management's best estimates and judgments.

Non-GAAP Measures

The Company uses the terms netbacks and net debt for measurements within this news release that do not have a standardized prescribed meaning under generally accepted accounting principles ("GAAP") and these measurements may differ from other companies and accordingly may not be comparable to measures used by other companies. The term "netback" is calculated as gross oil and gas sales less royalties, transportation and production expenses. Management believes that, in addition to GAAP measures, netback is a useful supplemental measure that can provide an indication of Virginia Hills operating performance. Net debt is defined as total outstanding bank debt plus working capital surplus or deficiency.

Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this news release.